Threats about tax incentives worrisome

File picture: Philimon Bulawayo

File picture: Philimon Bulawayo

Published Feb 23, 2017

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Pretoria - Governments historic reluctance

to offer tax incentives to attract investments was clearly demonstrated through

the negative comments in the 2017 Budget Review, with a veiled threat that they

may even be removed.  

National Treasury stated in the review that

corporate tax revenue can be increased by broadening the tax base. “This can

involve removing tax incentives, and introducing measures to curb tax avoidance

through loopholes and schemes.”

Cova Advisory director Duane Newman says

government is reviewing the effectiveness of all the incentive programmes. “It

is vital that this process be allowed to follow due process.”

He expressed concern about the silence on

the future of a key incentive programme, the Manufacturing Competitiveness

Enhancement Programme (MCEP) in Finance Minister Pravin Gordhan’s budget speech.

The programme has been suspended for two

years while another key incentive which allows for additional tax allowances (the

s12I Tax Incentive) will come to an end in December.

“The minister’s silence is worrisome on

what it communicates to manufacturers on the level of support they can expect

from the state in the near future.”

The MCEP was designed to support companies in

the production sectors to weather very adverse market conditions, secure higher

levels of investment, raise competitiveness and retain employment.

Read also:  #Budget2017: A Budget for the people

Although R1.3 billion has been allocated to

the programme in the 2018-19 budget, it has been earmarked for a sector

specific programme in the agro-processing and metals fabrication and generic

manufacturing sectors.

The tax allowance incentive was designed to

support new industrial projects as well as expansions or upgrades of existing

industrial projects.

Newman, also chair of the incentives

committee of the South African Institute of Tax Professionals (SAIT), says it

seems that new major capital projects will have no incentive support going

forward except for instances where approved projects are cancelled and some of

the fully allocated budget becomes available again.

“The balancing of the budget has

significantly influenced the overall incentive allocation” in the medium terms.

…. Between 2016/17 and 2019/20 the total incentive budget will experience negative

growth of 8.1 percent.”

Treasury says reviews of tax incentives

should regularly assess their effect on investment, job creation and growth. “Where

the costs outweigh the benefits, consideration should be given to removing

these incentives.”

Treasury will also review the current tax

incentive for qualifying industrial policy projects which comes to an end this

year. Once the review is finalised a decision will be taken on the future of

the incentive.

Newman says in terms of the “green economy”

there is no clarity on the implementation date for the carbon tax. “As such,

companies

should still operate under the assumption

that the carbon tax will be introduced in January 2018,” he advises.

Lesley O’Connell, PwC tax partner, says a

revised Carbon Tax Bill will be released this year, and is expected to be

tabled in Parliament around June.

The latest developments around the

implementation include that there will be no impact on the price of electricity

during the first phase of the tax until 2020. A revised regulation for the

carbon offset allowance will be published later this year.

SAIT CEO Keith Engel says it takes note of

the plan to introduce the Carbon Tax Bill to Parliament for 2017. “This is the

first time we are seeing a formal commitment from Finance Minister Pravin

Gordhan.”

The sugar tax will be implemented as a levy and both intrinsic and added sugars will fall

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